Brexit: A declaration of intent

techUK’s Head of Policy looks at the draft Political Declaration agreement between the UK and the EU.

Brexit is increasingly looking like a magic trick. While everyone is distracted by the political back and forth, the negotiations suddenly produce a final version of the Political Agreement from under their hat. Just as everyone focuses on the political agreement, Spain throws a spanner in the works over Gibraltar. After over two years of back and forth without much changing, we are now at the ‘blink and you’ll miss it’ stage of the negotiations.

First, a refresher - what is the Political Declaration? The Declaration is the agreement between the UK and the EU about where negotiations on the long-term future partnership between the UK and the EU should begin. Essentially it explores what both Parties agree that they need to agree. These negotiations will only begin after the EU formally leaves the EU in March 2019.

Crucially, unlike the Withdrawal Agreement (which covers how we leave the EU in March 2019), the Declaration is not legally binding and so does not preclude future negotiators deciding something entirely different. On that basis no one should bet their house on what’s included in the declaration will be in any final agreement that is negotiated after March 2019. This of course could mean that good things within the Declaration don’t happen, but could equally mean that issues not specifically included in the Declaration find their way into the agreement when it is finalised.

The Overall Framework

The reality of the Declaration is that it sets out as positive an agenda as possible while ensuring neither side has to face the difficult decisions that negotiations will require … yet. It talks about establishing “the parameters of an ambitious, broad, deep and flexible partnership” and about the need to balance rights and obligations without making a determination about what that balance might be.

A welcome element of the overall approach is that it does not limit a future agreement to a simple trade deal of the type the EU has done with Canada. This is very important for the tech sector as there are many areas in which such a deal would create significant restrictions on market access and create new barriers to trade. While the deal doesn’t rule out ending up in such a scenario, it does create the space in which the negotiations could go significantly further.

Data

Data has long been identified by techUK as of critical importance to the negotiations. Without a clear legal framework to allow the free flow of personal data, the burdens both on tech businesses and businesses across the whole of our rapidly digitising economy, would be significant.

It is therefore very welcome that the first real substantive issue addressed by the Declaration is data protection. The Declaration sets out very clearly that the EU will begin the processes of assessing the UK for an ‘adequacy’ agreement, with a timeline that ensures a decision is taken before the end of the transition period, which is set to be December 2020 in the legally binding withdrawal agreement.

Importantly the agreement also recognises that the UK will also have to start its own adequacy process, in order to meet its commitments under the General Data Protection Regulation (GDPR), which the UK has implemented, and has committed to retain, in full. This process is needed in order to declare the EU, and other third countries, adequate for the purposes of sharing UK citizen’s data. While the need for a UK adequacy process have long been known, the Declaration makes this very clearly part of the negotiations for the first time, recognising the mutual nature of data adequacy decisions.

The Declaration also keeps the door open to go further than an adequacy agreement by stating that the negotiations will ‘make arrangements for appropriate cooperation between regulators’. While not definitive, this may keep open the possibility for the UK Information Commissioner to engage on the European Data Protection Board (EDPB), something techUK believes would be beneficial for UK and EU businesses alike.

Finally, the security section of the paper recognises that a separate adequacy process must also begin to ensure that the UK is an adequate place to handle national security information under the Law Enforcement Directive. The clear distinction between this issue and an adequacy agreement under GDPR gives a welcome indication that both issues are being taken seriously and are front and centre of both the UK and EU negotiators’ minds.

People

One area where the Declaration remains highly unclear is on migration. It states that freedom of movement will no longer apply, but leaves wide open what a future agreement on migration might look like. It is likely that we will have to wait for the Government’s long-awaited White Paper on Migration before there is a clear picture of how the UK might approach this aspect of negotiations.

On a more welcome note, the Declaration makes clear the desire to ensure the continuation of visa free travel for short term business visits, as well as create a system that allows for movement to conduct research, training and youth exchanges (such as the Erasmus scheme). Clarity on these issues is very important for UK businesses seeking to do business across the EU.

However, another area that is outstanding is the ability to travel in order to service business contracts. The General Agreement of Trade in Services (GATS) at WTO sets a low threshold in this area, which means that travel to service a contact can be limited to 12 months, creating problems in offering longer term contracts. This will be a key issue for discussion in the next phase of negotiations.

Digital Services

The section on digital services contains slightly more detail than the original draft of the Declaration released last week. While it does not make any clear decisions about the level of alignment on digital services in general, it is good to see clarification that both sides wish to protect against barriers to trade such as data localisation, and to create an open online environment for both businesses and consumers.

In addition, techUK welcomes the statement that the negotiations will ensure fair and equal access to telecommunications networks and services. This was in the Chequer’s White Paper but not in the original draft of the Declaration. While it remains unclear how this will work in practise, its inclusion is a step in the right direction.

It is also positive to note that language within the Chequer’s White Paper which expressed the desire for increased flexibility around the rules governing digital services, even if that reduced market access, has not been included within the Declaration.

Customs and Movement of Goods

The row over the Northern Irish backstop has been at the centre of the political fallout from the publication of the Withdrawal Agreement. That backstop ties the UK into the Customs Union unless an alternative solution to the Northern Irish border issue is agreed.

That means the Political Declaration takes the backstop as the future relationship’s starting point. However, the Declaration does signal an intention to look for a future arrangement that could utilise alternative methods to create smooth customs procedures, such as using trusted trader programmes.

The Declaration also seeks to create a set of principles that allow for alignment on issues such as conformity assessment, technical regulations and standards. This will be welcome for many techUK members as it reduces the risk of requiring double testing of products for different product regulations.

While Brexit is highly likely to create additional friction in the movement of goods, it is welcome that the Political Declaration aims to minimise this friction.

Regulatory Cooperation

One critical area of any future relationship between the UK and the EU will be how UK regulators can engage with EU bodies that will, in many cases, be deciding the rules under which UK businesses working in the EU will have to operate.

Brexit will inevitably reduce the ability of the UK to influence these regulations, but the Political Agreement does suggest the potential for some kind of engagement that goes beyond what might be expected in a traditional trade deal.

For example, the Declaration states clearly that the Parties will explore cooperation between UK and EU agencies such as the European Chemicals Agency. Similarly, in financial services there is an objective of ‘close and structured cooperation on regulatory and supervisory matters’.

While none of this gives a clear picture of where regulatory cooperation may end up in any final agreement, it is clear that there is ambition and potential to go beyond a Canada-style agreement, which is a welcome step closer to a situation that maximises market access and engagement.

Other issues

There are a number of other issues within the Declaration of which it is important for tech businesses are aware:

Intellectual Property

The Declaration says the UK and EU will seek preserve the high levels of copyright and patent protection that already exist. Importantly though, the Declaration says that both the UK and EU will be able to set their own regimes for IP exhaustion. This will likely have significant implications for the e-commerce market when it comes to resale of goods.

Public Procurement

The Declaration sets out a clear aim of high levels of mutual access to public procurement, which is very important to many tech businesses providing GovTech solutions. However, it’s worth noting that this ambition is based on the UK’s desire to join the WTO’s Government Procurement Agreement (GPA). Our accession at WTO is currently being held up by the USA and others who have raised concerns about the UK joining the GPA, therefore the real battle on procurement might be in Geneva and not in Brussels.

Finance

One of the changes since the initial draft of the Declaration is that it now makes clear that the UK still wishes to explore ways to maintain a relationship with the European Investment Bank Group. The European Investment Bank (EIB) is critical in providing financing for infrastructure across the EU in which many techUK members are involved. In addition, the European Investment Fund, which is part of the EIB Group is critical in providing support for Venture Capital (VC) that flows into the UK tech sector. About 40% of all VC entering tech is from funds with some EIF money in them. Therefore maintaining a relationship in this area would be very beneficial to the wider tech ecosystem.

So what happens now?

As made clear in our last blog post on the Withdrawal Agreement, the Political Declaration will need to be passed by Parliament as part of the Meaningful Vote process. If it succeeds, the Declaration will provide the framework for the negotiations to start post-March 2019.

There will undoubtably be difficult choices in those future negotiations, and businesses will be wary that the Declaration does not go as far as many would wish. However, these are battles yet to come at a time when many businesses are keen to know what is going to happen over the next few weeks.

About techUK

techUK represents the companies and technologies that are defining today the world that we will live in tomorrow. Around 850 companies are members of techUK. Collectively they employ approximately 700,000 people, about half of all tech sector jobs in the UK. These companies range from leading FTSE 100 companies to new innovative start-ups. The majority of our members are small and medium-sized businesses.

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